FHA loans require a down payment of 3.5% of the home's purchase price, and that money comes from your own savings or an approved gift

An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development. The 3.5% down payment is the minimum — you can put down more if you have it, but most borrowers use exactly 3.5% because it lets them keep cash for closing costs and reserves. On a $200,000 home, that's $7,000. On a $300,000 home, it's $10,500.

The down payment comes from your bank account, savings account, or a gift from a family member. You cannot borrow it. The lender will ask to see bank statements going back two months to prove the money has been sitting there — they want to confirm you saved it rather than borrowed it days before closing. If someone gives you the money as a gift, they must sign a gift letter stating it does not need to be repaid.

After you put down 3.5%, you still owe the full purchase price plus closing costs. The FHA loan covers the rest of the purchase price. You also pay mortgage insurance premiums — an upfront fee (usually 1.75% of the loan amount) added to your mortgage, plus a monthly fee on your loan statement. That insurance protects the lender if you stop paying.

Key Takeaways

  • FHA loans require 3.5% down from your own savings or a documented gift; you cannot borrow the down payment.
  • On a $200,000 home purchase, 3.5% down is $7,000; the lender will verify the money has been in your account for at least two months.
  • You pay mortgage insurance on top of the down payment — an upfront fee of roughly 1.75% of the loan amount plus a monthly premium for the life of the loan.
  • Gift money must come with a signed letter from the giver stating it is a gift, not a loan to be repaid.

Where the 3.5% down payment sits in your total costs

Your total cash outlay at closing includes the down payment, closing costs, and sometimes a credit to cover part of those costs. The down payment is separate from closing costs — it goes toward the purchase price itself. Closing costs (title search, appraisal, loan origination, homeowners insurance, property taxes, and attorney fees) typically run 2% to 5% of the purchase price and are paid to various vendors and the lender.

Many FHA borrowers negotiate with the seller to cover some or all closing costs. This is called a seller concession. The seller can contribute up to 6% of the purchase price toward your closing costs on an FHA loan. If the seller covers $8,000 in closing costs on a $200,000 home, you still pay the full $7,000 down payment, but you need less cash out of pocket for the other fees.

Some borrowers also bring a small reserve — extra cash in the bank after closing — because lenders like to see you have a financial cushion. FHA loans typically require reserves equal to one or two months of your mortgage payment, depending on the lender. This is not money you pay; it stays in your account to show you can handle a hardship.

How to document that the down payment is yours

The lender will order a verification of deposits (VOD) directly from your bank. This is a form the bank fills out confirming your account balance and how long the account has been open. The lender also requests two months of bank statements from you — they look for large deposits that appeared recently and ask where the money came from.

If you received a gift, you must provide a gift letter on the giver's letterhead or a straightforward signed statement that includes their name, address, phone number, the amount of the gift, the date, and a sentence stating the money is a gift and does not need to be repaid. The giver does not need to be a relative, but most lenders require the giver to have a financial interest in your success — typically a family member, though some allow close friends or employers.

If you sold another property or received an inheritance and deposited that money, bring the settlement statement or probate documents. If you received a bonus or tax refund, a pay stub or tax return helps. The lender is not trying to be difficult — they are required by federal lending rules to document the source of funds and confirm you did not borrow the down payment from someone else.

What happens if you do not have 3.5% saved

If you are short on the down payment, a family member can give you the money as a gift. This is the most common path for first-time buyers. The gift must be documented with a letter, and the giver cannot expect repayment. Some employers, nonprofits, and state housing programs also offer down payment grants or forgivable loans — money that does not need to be repaid or is forgiven after you stay in the home for a set period. These vary by state and employer, so check with your state housing finance agency or your employer's benefits office.

If you cannot find a gift or grant, you have a few other options. You can delay the purchase and save more. You can look for a co-borrower — someone with stronger finances or savings who will be on the loan with you. Or you can explore other loan types: conventional loans often require 5% to 20% down but do not require mortgage insurance if you put down 20%, and some state or local first-time buyer programs have different rules.

Do not borrow the down payment from a credit card, personal loan, or line of credit. Lenders will see the new debt on your credit report and may deny the mortgage or require you to pay off the loan before closing. The debt also raises your debt-to-income ratio, which affects how much house you can afford.

Mortgage insurance and what it costs over time

Because you are putting down only 3.5%, the lender requires mortgage insurance to protect themselves if you default. The upfront mortgage insurance premium (UFMIP) is typically 1.75% of the loan amount and is rolled into your mortgage — you do not pay it at closing, but you pay interest on it for 30 years. On a $193,000 loan (the amount borrowed after your $7,000 down payment on a $200,000 home), the UFMIP is about $3,378, which adds roughly $16 per month to your payment.

You also pay an annual mortgage insurance premium (MIP) each month, usually between 0.55% and 0.80% of the loan amount per year, depending on your down payment and credit score. On a $193,000 loan at 0.65% annually, that is about $1,255 per year, or about $105 per month. This monthly fee stays on your loan for the life of the loan — unlike conventional mortgages, FHA mortgage insurance does not drop off after you reach 20% equity.

The total cost of mortgage insurance over 30 years can be substantial. On that $200,000 home, you might pay $40,000 to $50,000 in mortgage insurance alone. This is why some borrowers choose to put down more than 3.5% if they can — every percentage point reduces the loan amount and the insurance cost.

Down payment rules that change based on your credit score

Your credit score affects the mortgage insurance rate you pay, but it does not change the 3.5% minimum down payment. However, if your credit score is below 580, most lenders will not approve an FHA loan at all. If your score is between 580 and 619, you may face higher interest rates and mortgage insurance premiums. Scores of 620 and above typically get the standard rates.

Your debt-to-income ratio — the percentage of your monthly income that goes to debt payments — also matters. Most lenders cap this at 43% to 50%, depending on the lender and your compensating factors (like a large down payment or strong savings). If your ratio is too high, you may need to pay down other debts or increase your income before you can borrow enough for the home you want.

Frequently Asked Questions

Can I use a 401(k) or retirement account for the down payment?

Some lenders allow you to borrow from your 401(k) or take a withdrawal, but this has tax and penalty consequences. A 401(k) loan must be repaid, and if you leave your job, you may have to repay it quickly or face taxes and penalties. A withdrawal before age 59½ typically triggers a 10% penalty plus income taxes. Ask your lender which retirement account funds they accept and consult a tax professional before withdrawing.

What if I have been saving the down payment for years — do I still need to show two months of bank statements?

Yes. The lender needs to see the account for two months before closing to confirm the balance is stable and the money is yours. If you have had the same account for years, this is usually straightforward — the statements straightforward show your normal balance. Large deposits or withdrawals shortly before closing may trigger questions about where the money came from.

Can my parents gift me the down payment if they are also co-borrowers on the loan?

No. If someone is a co-borrower, they are legally responsible for repaying the loan, so any money they give you is considered a loan, not a gift. A gift must come from someone who is not on the mortgage. If your parents want to help and also be on the loan, they would be co-borrowers, and their income and debts would be factored into the approval.

Do I have to put down exactly 3.5%, or can I put down less?

FHA loans require a minimum of 3.5% down. You cannot put down less. You can put down more — 5%, 10%, or any amount up to 100% — but most borrowers use 3.5% to preserve cash for closing costs and emergencies.

If the seller pays my closing costs, do I still need to bring the down payment?

Yes. The down payment and closing costs are separate. Even if the seller covers all closing costs, you must still bring the 3.5% down payment from your own funds or a documented gift. The seller concession reduces your out-of-pocket cash but does not eliminate the down payment requirement.